Reverse Repo Closes, Whopping $2.2 Billion In Liquidity Taken Out Of Market

Today's TOMO has closed, with the Fed conducting a whopping $2.180 billion reverse repo, easily the biggest operation of this nature since 2009, when the Fed commenced comparable liquidity extracting tests. The TOMO consisted of $770 million in Treasury, $710 million in Agency and $700 million in MBS being use a reverse repo collateral, paying 0.09%, 0.1% and 0.14% respectively to the banks involved, undoing the entire $1.6 billion TIPS POMO conducted earlier. It seems that Fed is doing all it can to telegraph that this time it really is done with QE2. In other words 2011 is not 2010, when this movie ran the last time around...

Let's not forget that Greenspan attempted (briefly) to pull liquidity out of the market, and the market tumbled. Realizing he was f*cked, he resigned and handed the hot potato to Bernanke.

Bernanke knows full well that it is impossible to drain liquidity without collapsing his entire ponzi sham. He will pass the ball to someone else. But not before a few more absurd claims of "tailwinds", "sustainability" and success.

When we see the "Mission Accomplished" moment, you know he's fueling up the Gulfstream. (or more likely just running back to the security of ol' Princeton).

Central planners love to sound erudite and pensive about their policies, when the reality is that they are binary in nature, and in reality have only one setting: Print.

Am I reading the summary right: A 1 day Reverse Repo? Well gee, I guess Ben was right when he said he was 100% confident he could pull liquidity out of the market when the time came. What more proof do you need.

EXACTY as the USA gov spends over $2000 billion a year yet are claiming to be cutting a 'big' decrease of $61 billion. Normally this would be a joke, yet those of you stuck within the USA will be paying the piper sooner rather than later.

"It seems that Fed is doing all it can to telegraph that this time it really is done with QE2. In other words 2011 is not 2010, when this movie ran the last time around..."

Yeah, but what about QE Lite? That looks like it will continue.

And if/when the SHTF (and OK, the pain threshold could be much higher this year), then QE3 will be announced. America's investing public will demand it. The Fed will ride to the rescue and voila, the reflation trade will begin anew.

Gold is like the muzzled dog...It's the PDs who decide if and when he gets unleashed, as their spear carrier at the FED can manipulate the markets using their PD channels to counter small investor movements, however rational, by blocking it massively in parallel, paper PM markets controlled exclusively by them; false flag trick per se. Only when the market tsunami unfurls, that's when the FED/PD barrier folds in, like in reality...But we're not there yet...Benocide is still king of the heap...The Bastille is still Versailles...it's not yet toast. According to Ben it'll never be. That's the current FED mantra!

The Fed uses repurchase agreements, also called "RPs" or "repos", to make collateralized loans to primary dealers. In a reverserepo or “RRP”, the Fed borrows money from primary dealers. The typical term of these operations is overnight, but the Fed can conduct these operations with terms out to 65 business days.

TheFed uses these two types of transactions to offset temporary swings in bank reserves; a repo temporarily adds reserve balances to the banking system, while reverse repos temporarily drains balances from the system.

Repos and reverse repos are conducted with primary dealers via auction. In a repo, dealers bid on borrowing money versus various types of general collateral. In a reverserepo, dealers offer interest rates at which they would lend money to the Fed versus the Fed’s Treasury general collateral, typically Treasury bills.

A reverse repo is a temporary open market transaction which has the effect of draining reserves (cash) from the banking system. Fed lends securities for a set period and upon maturity of that set period, the securities are returned to the Fed and the cash goes back to the counterparty.

At the office someone brought up the guy who threatened the regulators back in January (McCrudden?) Is there any update on his situation? Is he for-real nuts or is he just getting silenced/moved where he gets no attention?

"Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

I've always liked your take on 'market reality', reits will go up. Mainly because of wrong 'headedness'. People who control money are stupid but need to be seen as 'correct enough not to go to jail'.

Given what is in the winds i would not be suprised if your chart drew 17 in 3 months; even 18 in 3 months.

Would i buy it here; well yes and no. No if your wealth is safe. Yes if you want to gamble on a horse race to hell.

Robots might want to buy here. Rational human beings might want to just grab a few grams of gold or an ouce or two of silver.

Ps. gold and silver will have a correction after Qe2 ends; yes it will end on schedule. 'Face' or aragence mandate it so. Presupposion of wealth or need, is often disproven. Non the less pump and dump is live and well in the world. Thats why tops and bottoms are for fools and gamers.

Struggling to see why this really makes a difference. If the banks buy this crap from the Fed with money/cash held on reserve with the Fed in the first place (which they really have no interest in lending anyway), then it would appear to be one big circle jerk. In theory, I understand that banks may have to sell "other" assets to execute the transaction but I'm not buying this as the banks are sitting on excess reserves to begin with. So this just appears to be one big accounting entry that moves one form of currency (i.e., treasuries, agencies, and MBS) to another (cash).

Actually, I see this as a way for the Fed to further monetize US debt without launching another QE. Take excess reserves and transfer them into treasuries, agencies, and MBS via repos. The Fed adds treasuries via its POMO and then subtracts them via TOMO/Repos. The Fed's balance sheet stays constant but transfers more of the funding requirements of the US Government to the banks in a stealth mode.

Of course the real damage with this strategy over the longer term is that the crowding out effect (i.e., the US Government consuming large amounts of capital the private sector needs to fuel innovation and real economic growth) will kill the private sector leaving the economy in even worst shape. I'm wondering if eventually we will see the same issue playing out with US banks as in Europe as they end up getting loaded with so much government debt that basically their only purpose is to finance soverign debt.

Remember when there was talk about requiring retirement accounts such as 401ks to invest X% into US government debt? Maybe this is the backdoor way of achieving this goal as excess balances in your savings, checking, MM, etc. accounts may continue to be allocated in higher percentages to US debt (via banks lending to the US government rather than the private sector).

Just some thoughts but again, it appears to me to be one big circle jerk with the money never finding its way into the real economy but just changing hands behind TPTB (of course, all earning a commission on every transaction).

If only the PDs don't start squealing about getting Tier 1 capital exemptions (again) in response, it will mean we're well on our way to one big happy ending and they will put the Bernank on a Wheaties box.

The success over the years in reducing inflation and, consequently, the average level ofnominal interest rates has increased the likelihood that the nominal policy interest ratemay become constrained by the zero lower bound. When that happens, a central bankcan no longer stimulate aggregate demand by further interest-rate reductions and mustrely on “non-standard” policy alternatives. To assess the potential effectiveness of suchpolicies, we analyze the behavior of selected asset prices over short periods surroundingcentral bank statements or other types of financial or economic news and estimate “noarbitrage”models of the term structure for the United States and Japan. There is someevidence that central bank communications can help to shape public expectations offuture policy actions and that asset purchases in large volume by a central bank would beable to affect the price or yield of the targeted asset.

eh. It's only a temporary sale, and one they can't keep up forever. It's good for insider trading though, once they get it calibrated.

I'd worry more if I saw them start increasing the size of these reverse repos, as they might do to try and gauge the breaking point. Then, supposing they wanted to create mischief, they could do a big enough reverse repo just before an expected government shutdown to prove that we really really need the government up and spending.

How many talking heads would link a market collapse to a government shutdown rather than the Fed draining liquidity?